Good day, ladies and gentlemen, and welcome to Genuine Parts Company Fourth Quarter 2025 Earnings Conference Call. Note that today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Tim Walsh, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Genuine Parts Company's Fourth Quarter 2025 Earnings Call. Joining us on the call today are Will Stengel, Chair-Elect and Chief Executive Officer; and Bert Nappier, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, a supplemental slide presentation can be found on the Investors page of the Genuine Parts Company website. Today's call is being webcast, and a replay will also be made available on the company's website after the call. Following our prepared remarks, the call will be open for questions, the responses to which will reflect management's views as of today, February 17, 2026. If we're unable to get to your questions, please contact our Investor Relations department. Please be advised this call may include certain non-GAAP financial measures, which may be referred to during today's discussion of our results as reported under generally accepted accounting principles. A reconciliation of these measures is provided in the earnings press release. Today's call may also involve forward-looking statements regarding the company and its businesses as defined in the Private Securities Litigation Reform Act of 1995. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release. The company assumes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Will.

Thank you, Tim. Good morning, everyone, and thank you for joining our fourth quarter and full year 2025 earnings call. Before we start, as always, I want to thank our 65,000 global teammates for their efforts in serving our customers. Our employees are at the core of our success as they work every day to deliver solutions and service to our customers. Our 2025 achievements are a result of their hard work and dedication. We shared a significant and exciting update for Genuine Parts Company this morning: our intent to separate into 2 independent publicly traded companies, our Automotive businesses will continue to be the largest global automotive aftermarket replacement parts and solutions provider in the world, and our Global Industrial businesses will create a stand-alone best-in-class industrial solutions platform. I'll start this morning by sharing additional perspective on the announcement and then discuss our full year performance. Bert will discuss the financial results for the fourth quarter, trends to start the year and our 2026 outlook before we open it up for questions. For nearly a century, Genuine Parts Company has a proud history of leadership and driving change in its industries, always focused on serving our customers and taking action to strengthen the business as markets evolve. Over the last decade, we have established leading global footprints in attractive geographies, simplified our business mix and accelerated strategic investments to further advance and differentiate our business. More recently, despite dynamic markets, we have focused on a broad-based supply chain and technology transformation effort, and we have simultaneously invested in talent and capabilities across the company. We've complemented our work with significant acquisition activity to add scale and local service in our priority markets. We've leveraged a global team approach to evolve the business and increase the intrinsic value of…

Thanks, Will, and thanks to everyone for joining the call. We closed 2025 with fourth quarter sales growth of 4% and adjusted gross margin expansion of 70 basis points. Our sales performance was highlighted by a near 5% increase in sales within Industrial as well as strength in our U.S. NAPA company-owned stores with approximately 4% comparable sales growth in the quarter. Despite these tailwinds, our fourth quarter adjusted earnings of $1.55 were below prior year as the benefit from higher sales and gross margin expansion was offset by our previously communicated headwinds from depreciation and interest expense and lost pension income. Our fourth quarter results have been adjusted for onetime items, including the settlement charge associated with the planned termination of our pension plan. Before turning to the specifics of the quarter, I'd like to share a few thoughts on our performance relative to our original outlook. As we began the quarter, we expected stronger fourth quarter sales growth to offset the collective headwinds from depreciation, interest and lost pension income, resulting in earnings growth. However, our results fell short of our expectations, entirely driven by weaker sales in Europe and lower sales to independent owners in our U.S. NAPA business. Our gross margin expansion and absolute dollars of SG&A expense were right on our forecast, and the underlying fundamentals driving our segments remain solid. With respect to Europe, underlying market conditions deteriorated sequentially from September to October and then again in November, leaving the underlying market growth down mid-single digits for the quarter. This deterioration led to a decrease in sales for Europe versus our expectations for low single-digit growth. The impact of these weaker market conditions had an estimated $0.10 negative impact to the quarter relative to our initial view. Despite the tough market conditions, we believe…

[Operator Instructions] Your first question will be from Scot Ciccarelli at Truist.

I think separating the businesses is a good idea. But with that on the table, can you help us better understand the margin pressures on the North American Auto business, a 14% EBITDA decline against pretty soft performance in the prior year and a 5.5% margin just seems quite a bit lower than what we would have anticipated. And then related to that, so part 2, with the improved disclosure, can you give us an idea of how much the earnings contribution in North America is coming from your company-owned stores versus how much from the independents?

Thanks, Scot. I'll start off on the EBITDA margin for North America and maybe take it up just a little bit. I think when we think about the fourth quarter, at a consolidated level, we think about what happened during the quarter, we talked a little bit in my prepared remarks about our expectations coming in short both in Europe and with independent owners. We also had profit growth -- we also had sales growth that came from FX in the quarter. There's very little profit benefit on that as well. So when we look at the movement through the P&L, I think we did a nice job of controlling costs despite some inflation in wages. Core cost growth in the quarter was 1.7%, which excludes acquisitions and FX. So I think the benefits of our restructuring program have performed nicely, and in looking at the core, we've really tried to control it pretty well. That left us with an EBITDA level that wasn't enough to offset some of those headwinds we talked about at the beginning of the year and then it persisted through the course of the year with depreciation, pension and interest expense. When I look at North America Auto -- or the North American business more specifically, I think the themes are similar to the ones I talked about in my prepared remarks. We had the wage pressure with cost inflation. U.S. health care has been a particular challenge here in the fourth quarter. For the full year, it was up $32 million, about $20 million more than our expectations for the full year. And that particular cost is growing at a very high clip, I would say high single digits for the full year. Beyond that, we had some rent and freight pressure in the North American business in the fourth quarter from cost inflation. And on IT, a disproportionate level of our IT investments are happening in the North America business, and that's challenging SG&A because, as you know, those investments, as we modernize and move to cloud-based technology, move [indiscernible] SG&A.

And then -- okay. And can you give us an idea about the earnings contribution company-owned versus independents? Obviously, the independents have been under pressure for a while.

Yes, Scot, that's probably something we'll get into more detail when we have an Investor Day for Global Automotive. As you know, the stores are split 65-35 now. Sales is probably more 50-50. But we'd say that both are contributing to our profit. And we'll get into a little bit more color on the model, I think, as we look ahead and move to an Investor Day.

Scot, I would just add one other thing in terms of kind of operationally the improvements that we're making with our company-owned stores, there's been a lot of good work through the year. We made some organization structure changes to make sure that we had the right resources and leadership over top of our company-owned stores, both at an executive level and in the field. And that's really all around driving discipline and standardized processes and all the things that we need to do at a very basic and fundamental level each and every day to take care of our customers. So whether it's pricing strategies, inventory strategies, payroll mix, we've made a lot of really nice progress. I think our payroll percentage in our company-owned stores was as good as it's ever been in the fourth quarter. So a lot to like as we go through the transformation around all things company-owned stores, and then working with these owners to get everybody in a better spot competing in the market.

Next question will be from Greg Melich at Evercore.

My first question was on the inflation trends in the quarter. You mentioned, I think, it was a little over 4% in Industrial and a little over 3% in Auto. Could you give us an update on what you expect in your guidance for this year for those 2 numbers?

Yes. So Greg, I think for inflation for the full year, which includes tariffs, we said 2% as we look across the balance of the entirety of the year. You'll remember that the lapping of benefits will come as we get through the first half. So I would expect pricing benefits to get a little bit more compressed in the second half. About 1 point of the 2% we're expecting for the full year comes from tariff, when we look out across the full year. I think as I look at the 2 individual businesses, we'll just keep it kind of where we've kept it, which is at the 2% low single digit, I don't think they're really disproportionately weighted between the North American Industrial business and the NAPA business. So I don't know that there's a distinction to make between the two. I think the 2% holds for the full year for both, and about 0.5 point -- or I'm sorry, about half of that comes from tariff as we look across the full year.

Greg, I might just also comment that the tariff anomalies in terms of interacting with our suppliers have all largely moderated, so we're back into a more ordinary course commercial discussion with suppliers about how to think about standard price increases as we go through a new calendar year. And in some instances, given all of the activity that happened in 2025, those discussions are noncontroversial and in some cases, not even happening given all the stuff that happened in 2025. So I think we're coming on the back side of all things tariff inflation and we're back to a more standard, structured inflationary environment from a price standpoint.

And my follow-up is on the separation of the businesses. Given that you just had or announced, I think, the 70th year of a dividend increase, you talked about investment-grade capital structure for both businesses. How are you thinking about the dividend, either having one or bringing -- keeping a growth rate given the history of Genuine Parts with that?

Greg, thanks for the question. I think there's a lot more to come on the capital structure of the 2 businesses and the capital allocation policies. And we're working on refining those details internally, and we'll get that to you guys in due course. I think we'll stay focused on, one, capital structure side, as Will mentioned in his remarks, making sure that we have strong balance sheets for both businesses and that we maintain an investment-grade rating on both. When we think about capital allocation, it will start with the business strategies of each individual business and where we think we need to invest and, at the same time, being very balanced on shareholder returns and making sure we're thoughtful about how to do that and the right strategies for those 2 things that attract the right investor bases based on the business strategy. So it will be an important conversation as we go forward. I think there's no change to the GPC dividend policy for this year in 2026. We announced a 3.2% increase this morning. That's in line with last year. And I think it's the right decision for the business as we go through this transition.

Next question will be from Bret Jordan at Jefferies.

On that capital allocation comment, if you look at the 2 sides of the business, do you see one of them sort of needing more catch-up investment than the other? I mean it does seem like the Motion business might be a bit more modern given more significant recent M&A there. Is there a big difference in capital allocation between the two?

I think they have different priorities, Bret. I don't know that they have different overall investment needs. I think as you point out, Motion business is inherently capital-light. And I think Motion has really invested in the business smartly. And as Will mentioned in his prepared remarks, I think Motion is positioned to continue to grow through bolt-on and strategic acquisitions. When you think about the Global Automotive business, we'll continue to do bolt-on M&A there looking ahead. But I also think that we have interesting and exciting and compelling investment opportunities on the capital side that provide medium-term margin expansion. Some of those we've been making. As you guys know, we've put $3 billion of capital into the business over the last 5 years and put it to work. And that's why we're so excited about the opportunities that we have ahead with the separation because we think that business -- don't forget, Global Automotive will be a $16 billion top line business with $1.3 billion of EBITDA at the midpoint of the ranges we gave you for the year. So we're excited about what that business can do. And I think its investment might tilt a little bit more towards CapEx versus M&A, but I don't want to prejudge the capital allocation policy for either company. But hopefully, as we look ahead, that will give you a little color.

I guess then a quick follow-up. European regional performance, I mean it sounds like it's all weak, but is there anything to speak of around performance dispersion?

Yes. I would say it was certainly weak relative to our expectations, as we've commented, with particular weakness in the U.K. and France and Germany, which are our big 3 markets. Interestingly, one of our steady performers, in our Benelux business, it's a small business for us, but it actually sequentially weakened through the year as well. A bright spot for us is the great work happening in Spain and Portugal, which has been a really nice case study for how we bring the NAPA brand to a new geography in Europe. We've essentially doubled that business. We've essentially doubled the EBITDA rate of that business. And the NAPA brand is really carrying the day to, even in a tough market, win share. So generally weak across the board. But as Bert said in his prepared remarks, we've put a lot of capital into Europe. We've got really nice supply chain investments in the U.K., really nice supply chain investments in France, supply chain investments in Germany and Spain. So as that market recovers, we're going to have a very differentiated platform relative to the balance of the market. And it's a great operating team with a lot of focus and a lot of urgency to make hard calls in a tough market. So we feel good about the future. We're just working through a soft moment in time.

And Bret, I'd just add to that, that I think for the region for the fourth quarter, our performance was right in line. Everybody had a bit tougher experience. And I think if you look at the balance of 2025, I'd say that our European business performed in line or better than the region for the full year.

Next question will be from Chris Horvers at JPMorgan.

Congratulations on the announcement. In the new reporting framework, you're breaking out NAPA between North America and International. As you've gone through this process and just a broader separation announcement, how are you thinking about the synergies of operating a Global Automotive business? Obviously, there's the NAPA brand and the sourcing, but is there something to having sort of a dedicated North American company and a dedicated European, Australia, Asia business?

Chris, I would say it's incrementally easier to extract a global harmonization with just an Automotive platform versus Auto and Industrial. Part of that logic was as we thought strategically about what we call One GPC, we've made a lot of progress on that front. But for a combined entity to take that next phase of what does One GPC mean and how do you extract value, it gets complex across both an Industrial and Automotive platform. And I would say it gets incrementally less complex for a stand-alone Automotive business. Having said that, I do think we've come to really appreciate the importance of having specialized expertise down at the geographic level, meaning Asia Pac needs to be close to those customers and make the right customer-level decisions. Europe has customer-specific decisions to make, and so we will continue even in the Global Automotive platform to pursue "One GPC" synergies, but we made good progress and it's probably not the value driver as we think about the value, the multiple expansion and the margin expansion as we move forward.

And then following up on Bret's question. Can you break out for us sort of your expected CapEx and D&A between Motion and the Automotive business as you're planning 2026? What's the split there?

Yes. Bret, we don't -- I'm sorry. Chris, we don't really get into that kind of level of detail. I would just say that when we think about CapEx, we think about it more from an activity perspective. So as I look at the year, about 50% of the upcoming investment for 2026 will be in IT, with about another 30% to 35% in what we would call supply chain modernization, and that might be buildings and DCs and things like that. I would say that in general, though, because Motion is a relatively capital-light business, the orientation, if you want to think about it from the 2 business units, would weight more towards the Global Automotive business.

Chris, I also just wanted to follow up on another thought that I had as it relates to North America. As you know, we put Alain Masse in a leadership role running both our Canadian and our U.S. business. And I would say in that situation, we're excited about the opportunities to continue to extract value from working more closely together as a North American platform. So in that geography, I think we've got intra-geography opportunity, but my comments I think still hold for the cross-global opportunities. Those are a little bit harder to get and will take some time.

Next question will be from Michael Lasser at UBS.

If we look at the North American Auto business, it does appear that market share took a step back in the fourth quarter, perhaps largely related to the independent business. So A, why was that the case? And B, if we look at your guidance, it does indicate that you expect that business to accelerate in 2026. Would that be predicated on an improvement in the independent business? And what would be responsible for that?

Michael, I'll take that one. I think when we look at the performance of the business in the fourth quarter, I'd start with the strength of the company-owned stores in North America and, in particular, NAPA, 4% comp sales. I think they're performing nicely, sequential improvement and we continue to control the things that we can control. As I mentioned with the independent owners in my prepared remarks, we had a quarter -- Q3 in which we had built some nice momentum, sequential improvement for independent owner performance through the course of the year, and we flatly expected that to maintain in the fourth quarter, even with the promotional comp that I mentioned in my prepared remarks. And unfortunately, that wasn't the case, as I shared, and they didn't meet our expectations for what we thought for what would happen in Q4. The independent owners continue to be an important part of our model, and I think they are just continuing to deal with the headwinds that we're all dealing with, whether it's cost inflation, persistent elevated interest rates, all the different dynamics we've mentioned before. As we look ahead to 2026, as I mentioned in my prepared remarks, we're being prudent and cautious. I would say that as we look into the early part of the year, we're not expecting or anticipating any material improvement in performance there. That's not because we are doubting what they're doing. It's more about just being smart about the trajectory as we came out of the fourth quarter. As we move through the balance of the year, Will mentioned just a few minutes ago, we're going to continue to work very closely with them on positioning them for strength in the marketplace and making sure we're staying balanced on investing with them, growing with them and pushing them forward. So look, we've done a lot of great work in this space. I think we'll continue to see more benefits. But in the early part of the year, I think we're being a bit prudent not only with the performance of the independent owner but also in Europe.

Okay. My follow-up question is, as you look forward to the separation, you provided some helpful detail on the profitability of the North American Auto business versus the International Auto business, do you think it would be prudent, and I'm recognizing that it's still very early and you're likely to give some information over time, but just conceptually, do you think it would be prudent to take down the profitability of the North American Auto business as a manner in which to stabilize or maybe improve the overall market share of that segment?

Michael, if I'm following your question, I don't think that's necessary for us to take down the margin profile of the North American business to compete more effectively. I think we feel really good about the work that's been done and that's planned to be done as we move forward. And that should position that business to be a very enticing and compelling value creation story. And part of our assessment and the work that we did in 2025 was to get very granular and tactical on what are the initiatives and what is the pathway to creating and earning our entitlement in North America Automotive. And we're looking forward to sharing all of that great work at an Investor Day to get everybody really excited, as excited as we are, about the potential of that business.

Next question will be from Chris Dankert at Loop Capital Markets.

Again, first off, just congrats on the announcement. Very exciting times. I guess just to move more operationally here, the streamlining, you guys called out, I think, $100 million to $125 million of kind of restructuring benefit for the year. Can you break out what the mix is of the attribution? I assume most of it's Automotive, but any color that would be helpful.

Yes, Chris, actually, it's pretty split between both businesses. Both have really compelling opportunities on the transformation side as we look ahead. So I would say if you're thinking about the benefit that we'll see in the year, one, the benefit will move through the P&L, partly through gross margin and partly through productivity and SG&A, so it's not all a cost play. And as we think about it, we're getting more and more weighted towards transformation activities, I think, which are the more exciting and the more compelling things that are going to drive opportunities in the medium term. We'll still do some restructuring through the course of the year. We'll have some things that we focus on in terms of facilities and store optimization, branch optimization, DC optimization. But the transformation initiatives, again, are thematically aligned to where we've talked about investing. We've got great opportunities in the NAPA supply chain. We're working really hard on sales effectiveness, both at NAPA and the Industrial business. And that gets back to Will's comments on partnership with independent owners. We think we can make some really nice moves with sales effectiveness, not only in company-owned stores at NAPA, but also with independent owners. And those are going to be compelling. And then Motion is doing great work on just doubling down on how great they already are. And when you look past that, we've got some opportunities in the commercial space at Motion. I think we'll be smarter and much sharper on pricing tools and capabilities that are going to be in this set of transformation initiatives. And then finally, we have great opportunities in technology. What Naveen is doing with the team around the world to drive productivity, both in terms of back office, store technology, catalog and search, but also inside of a facility, are really compelling. So we're excited about the future. I think the benefits come through multiple prisms and split between the 2 business units and set us up for even further success as we move into 2027 and beyond.

That's good stuff. Look forward to hearing more detail about that at the Analyst Day for sure. And I guess just a quick follow-up. On the guidance, you mentioned the real -- the baseline assumption is pretty flattish market growth. Any shape to the year there? Is the assumption negative first half, slight positive back half or just pretty ratable?

Yes. No, I think it's a great question, and it's a good chance to give you a little color on the shape of the year. I think we'll expect earnings growth to accelerate sequentially as we move through the quarters. The first quarter, first half will be a bit more muted. I've mentioned a few times European market conditions, and I think we're being prudent on very modest expectations for the independent owners given the exit levels on both areas as we came out of 2025. Flat market growth throughout the year. We're not planning for an acceleration in market conditions throughout 2026, even though we've had a little positive reading here in January on PMI. We started the year -- last year with 2 positive readings, and so I think we're just being smart about lessons learned there. And we'll be watching gross margin rate very closely. It's an important part of our profit profile. And so we're moving through a year in which we're lapping tariff benefits and normalization of the tariff landscape, and so we'll be watching that closely. The interest expense headwind, I mentioned, for 2026 is weighted more in the first half of the year. And so we'll be thinking about that as well as we shape out the year. But having said all that, we're very confident in our full year guidance, and we're focused on driving benefits and additional benefits wherever we can.

Ladies and gentlemen, we have time for one more question. And our last question will be from Kate McShane at Goldman Sachs.

It's just kind of a housekeeping question at the end of this call. But just with regards to growth [indiscernible] maintenance and discretionary, I know you gave numbers for the year. But we just wondered if you could talk to how it performed -- how each category performed in Q4? And what your expectation is with -- if any, if there was deferral in the back half of this year, what that looks like into '26?

Say the last part again, Kate? You cut out just a little bit on our end, sorry.

Sorry, sorry. Just about any kind of deferral that you may have seen towards the end of '25, if '26 -- and when it would be in '26, you could make up some of that deferral?

Yes, Kate. Yes, in terms of nondiscretionary repair, that was, call it, mid-single digits for the fourth quarter. So that's been pretty consistently improving as we've gone through the year. I would say the same for maintenance and service. And actually, in the fourth quarter, the discretionary part of the business was also kind of mid-single digits as well. So for the full year, you had nondiscretionary repair of mid-singles, maintenance and service kind of going from low to mid-singles, and then discretionary going from flat to slightly up as we look at the math for the full year. So I think that those trends probably continue to improve as we go through into 2026. I would tell you, customers are still looking for value as we look at all of our assortment strategies and where we're seeing good traction. There's obviously people emphasizing our value lines and some of the assortment that we have below the better and best line. So I think all those trends will continue into 2026. That line up with this concept that Bert's talking about, which is kind of a flattish volume market, slightly down with some price benefit to be kind of neutral overall for the market in 2026.

Thank you. This does conclude today's Q&A. I would now like to turn the call back over to Will Stengel, CEO. Please go ahead.

Thank you, everybody, for joining us today. We look forward to updating you on the transaction and our progress as we move through the quarter on the April earnings call. Thanks again for being with us, and thanks for your support.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.